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Even for people on a tax rate which is lower than the top marginal rate of tax, salary packaging a car (via novated lease) can be beneficial. This is because of calculation of FBT on cars when using the statutory method.
What is a lessor known fact is that where individuals are on a tax rate below the top marginal rate, salary packaging a car can be made even more beneficial by "employee contributions".
Broadly, what employee contributions are are after tax contributions made by employees back to their employer to reduce the value of the fringe benefit provided to them. In turn, this reduces the FBT payable by the employer (which would otherwise be factored into the salary package cost).
The rationale behind employee contributions is that FBT is calculated at a flat rate of 48.5%. Where an employee is on a tax rate of less than 48.5%, it makes sense to reimburse their employee with after tax dollars (which have been taxed at less than 48.5%) to reduce the value of the fringe benefit (that would otherwise be taxed as a FBT at 48.5%).
The thing to think about is that for employees on a tax rate lower than the top marginal rate, employee contributions make it that extra bit better. Can potentially add extra cash savings of approximately $500 - $1,000 per year (depending on the value of the car and amount of km's driven).
As to the amount of the employee contribution - it should equal the taxable value of the fringe benefit provided so as to reduce the taxable value to nil. This will entirely eliminate the FBT that the employer will have to pay (which would otherwise be assessed at 48.5%).
What is a lessor known fact is that where individuals are on a tax rate below the top marginal rate, salary packaging a car can be made even more beneficial by "employee contributions".
Broadly, what employee contributions are are after tax contributions made by employees back to their employer to reduce the value of the fringe benefit provided to them. In turn, this reduces the FBT payable by the employer (which would otherwise be factored into the salary package cost).
The rationale behind employee contributions is that FBT is calculated at a flat rate of 48.5%. Where an employee is on a tax rate of less than 48.5%, it makes sense to reimburse their employee with after tax dollars (which have been taxed at less than 48.5%) to reduce the value of the fringe benefit (that would otherwise be taxed as a FBT at 48.5%).
The thing to think about is that for employees on a tax rate lower than the top marginal rate, employee contributions make it that extra bit better. Can potentially add extra cash savings of approximately $500 - $1,000 per year (depending on the value of the car and amount of km's driven).
As to the amount of the employee contribution - it should equal the taxable value of the fringe benefit provided so as to reduce the taxable value to nil. This will entirely eliminate the FBT that the employer will have to pay (which would otherwise be assessed at 48.5%).
